BERLIN —
Germany has backed down from its resistance to boosting Europe’s financial firewalls, after Chancellor Angela Merkel said she was open to temporarily boosting the eurozone’s bailout funds to $930 billion. But the move still falls short of what may be needed to protect Italy and Spain from collapse.
Germany has been insisting there was no need to increase the lending capacity of the bailout funds beyond the planned $665 billion — despite uncertainty over the ability of Rome and Madrid to repay their debts.
However, a temporary increase to $930 billion — of which close to $266 billion has already been committed to previous bailouts — may not be enough to convince markets and global institutions such as the International Monetary Fund that the eurozone is doing enough to stop its debt crisis from spreading.
The 17 euro countries are debating how to move from their old bailout fund — the $585 billion European Financial Stability Facility, which is providing about $255 billion in loans to Greece, Ireland and Portugal — to a new, permanent rescue fund — the $665 billion European Stability Mechanism.
The ESM is set to come into force in July, but under current policy, old bailouts would have to be subtracted from its overall capacity, meaning that it could give only about $398 billion in new loans. That is seen as far too little to effectively help large economies such as Italy and Spain, which together have more than $3.3 trillion in debts.
EU Economic Affairs Commissioner Olli Rehn stressed Monday that eurozone finance ministers had to send a strong signal to the rest of the world at their meeting Friday.
“We will have to take a convincing decision concerning the reinforcement of the euro-area financial firewalls, in order to also convince our international partners to reinforce the resources of the International Monetary Fund,” Rehn said in Helsinki.
